Australia

AUSTRALIA, 18 July, 2013 – Second-quarter figures released by Jones Lang LaSalle show the average retail vacancy rate for the Australian market rose to 4% in the first half of 2013, from 3.5% in December 2012.

This can largely be attributed to a challenging retail leasing environment, according to Jones Lang LaSalle’s Head of Retail, Property & Asset Management Tony Doherty.

According to Mr Doherty, “The latest research indicates that even though many retailers have been strengthening their businesses over the past 18 months, the leasing market is still challenging and it is quite competitive to attract new tenants.

“While vacancy rates have remained elevated leasing activity is rising, reflecting the higher rate of tenant turnover that is currently occurring as landlords go through the slow process of optimising their tenant mix at a time when demand is less than strong.”

Mr Doherty said shopping centres that are being actively managed and getting the necessary capital expenditure, are generally being rewarded with leasing success.

Jones Lang LaSalle’s National Retail Analyst Andrew Quillfeldt said, “In the last six months we’ve seen a modest softening in occupancy rates and rental growth across most shopping centre formats. However, capital values are holding up relatively well and are being supported by reasonably strong investment demand.”

Mr Quillfeldt said the increase in the average retail vacancy rate in the first half was largely driven by a notable rise in the national CBD retail category, which rose to 6.7% in June 2013 from 5.4% in December 2012.

“The Perth and Adelaide CBD retail vacancy rates are particularly high, and have been impacted by new supply additions. In Perth, the vacancy is partly concentrated in a few specific centres but some of the weakness in this market relates to the deregulation of Sunday trading, which has supported many of the suburban centres.

“Sydney and Melbourne CBD retail markets are far more balanced, both with vacancy rates below 4.0% (currently, 3.6% for Sydney and 3.8% for Melbourne), albeit slightly elevated to long-term average levels.”

Mr Quillfeldt said that outside of the CBD category, retail markets are still fairly balanced, with only minor increases in average vacancy rates recorded across the sub-regional and neighbourhood centre categories, while regional centres actually recorded a very slight decline.

“Although vacancy rates still remain relatively low in the regional centre market, particularly in Sydney and Melbourne, we note that there is still a level of hidden vacancy in many centres reflecting a greater level of short-term leasing.”

According to Mr Quillfeldt, as a result of the excess capacity in some markets, a slight decline in average rents is starting to be seen. “On average across all retail categories, average specialty store rents fell by approximately 0.7% in the year to June 2013,” said Mr Quillfeldt.

“We maintain a relatively positive outlook for the retail sector. The drivers are supportive of a recovery in retail spending and tenant demand, but the next six to twelve months are likely to remain somewhat subdued while there is a gradual rebalancing of market conditions,” concluded Mr Quillfeldt.

Figure 1

Table 1

Note to Editors:The classifications of shopping centres are below for reference:

CBD: The main commercial centre of a metropolitan area. CBD includes strip shops, enclosed arcades and large shopping complexes.Regional Centres: Major centres that are department store based (Myer, David Jones). These centres often contain more than 200 specialty shops and several other major tenants.Sub-regional Centres: Centres that are discount department store based (eg Kmart, Target, Big W and Harris Scarfe) and supermarkets.Neighbourhood Centres: Enclosed centres containing a supermarket and specialties.Bulky Goods: The sale of low cost/high bulk goods, such as furniture, electrical goods and building products. May be freestanding or within enclosed centres.